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22 | The South African Insurance Industry Survey 2016 the index was below a reading of zero, pointing to With this in mind, gross fixed capital formation is
more consumers being negative than positive about projected to contract by more than 1 percent this year,
IF YOU’RE NOT WILLING their financial and economic positions over the past which will undo most of the 1.4 percent expansion
TO RISK THE UNUSUAL, four years. This negative sentiment is also reflected recorded during 2015.
YOU WILL HAVE TO SETTLE in quarterly business confidence data and actual
FOR THE ORDINARY. household spending data. The Medium-Term Budget Policy Statement (MTBPS)
and Budget Speech delivered in October 2015 and
Jim Rohn The reasons behind weak consumer sentiment February 2016 respectively, jolted government
includes high levels of household debt (+/- 78 percent expenditure into a more austere direction. State
of disposable income), persistently high unemployment finances have already been under pressure since
rates (approximating 25 percent), rising consumer price the global financial crisis, with fiscal deficits - and an
inflation and an associated increase in interest rates, accompanied accumulation in public debt - used to help
as well as a downbeat perspective of the country’s stimulate the local economy. Combined with political
economy and politics heading towards 2017. These issues and a weak economy, this has contributed
factors are forcing consumers to curb their expenditure towards the South African sovereign credit rating
on non-essential goods and to take on a conservative nearing a downgrade to non-investment grade.
approach to their finances in general. Real household
expenditure growth is expected to slow from 1.6 Finance Minister Pravin Gordhan indicated that the
percent in 2015 to just 0.5 percent during 2016. 2016/17 budget is “focused on fiscal consolidation.” He
warned that the government “cannot spend money we
The United Nations’ Conference on Trade and do not have,” and “cannot borrow beyond our ability
Development (UNCTAD) recorded a near 69 percent to repay. Until we can ignite growth and generate
drop in South Africa’s net foreign direct investment more revenue, we have to be tough on ourselves.” As
(FDI) during 2015 compared to a decline of around a result, real government consumption expenditure
30 percent for the continent as a whole. One of the will grow by less than 1.5 percent during the current
factors behind this slump is a number of new or (2016/17) fiscal year – i.e. below the 2010-15 average of
proposed legislative changes that, analysts say, are 2.3 percent.
weighing on foreign investors’ confidence in the safety
of their investments. These include the Promotion and South Africa’s export revenues are under pressure
Protection of Investment Bill that necessitated the from weakness in global commodity prices. The
cancellation of several bilateral investment treaties to Economist’s commodity price index reflects a more
be signed into law early in 2016. than 15 percent decline in US dollar metal prices in
the year ended April 2016. The Rand depreciated by
Business investment - both local and abroad - has since a similar margin over the same period, resulting in
late 2015 been hit by a myriad of other challenges. no real boost to exporters’ earnings from the weaker
These include an unexpected double change in the currency.
Finance Minister post, deteriorating sovereign credit
ratings, stuttering economic growth, a slump in the At the same time, export-oriented miners and
Rand to its weakest level on record, as well as political manufacturers’ production costs continue to rise as
issues diverting government focus from policymaking wage and power tariff increases show no sign of
and implementation (a lack of electricity load shedding slowing. A key factor in South Africa’s export success
was a rare positive point). during 2016 will be the health of the Chinese economy.
